With declining remittance and ballonig trade deficit, Nepal’s economy is heading towards a major crisis

With the easy foreign exchange coming from
remittances, Nepal’s has enough hard currency to import the goods from foreign
countries. However, the declining of
remittances and increasing imports, Nepal will have to suffer a major crisis in
the balance of payment next year.

From Asian Development Bank to the World Bank and
recently published economic update of IMF, all the reports has been warning
Nepal for the current situation for quite a long time. However, no one listened
it.

With the rise of consumerism, Nepal’s export started
to fall and import of foreign currencies including the luxurious goods has
increased. If the current trade volume is any indication, it shows that
Nepal’s has no option other than to go
for bailout early next year.

“Nepal needs to see to improve the industrial
production to increase the export and reduce import,” said economist Dr. Posh
Raj Pandey in an interview. He said that Nepal needs to reduce dependence on remittance.”

Suffered by falling oil price, the recent disputes
in Gulf countries is further creating pressure on Nepal. Given the present
scenario nothing can rule out.

According to a report of Nepal Rastra Bank’s
microeconomic and financial situation report, the total trade deficit of Nepal
in the first 10 months of this fiscal has widened by 37.5 per cent to Rs 747.65
billion as against a contraction of 2.4 per cent in the same period of last
fiscal. However, export-import ratio has declined to 7.5 per cent in the review
period this fiscal year from 9.3 per cent in the corresponding period of the
last fiscal year.

The merchandise exports in the first 10 months of
2016-17 has increased by 9.8 per cent to Rs 61.02 billion as against a drop by
21.7 per cent in the corresponding period of 2015-16. During the review period,
export to India, China and other countries increased by 15 per cent, 5.6 per
cent and 3.1 per cent respectively. Similarly, the merchandise imports in the
review period increased by 34.9 per cent to Rs 808.68 billion compared to a
drop of 4.6 per cent in the same period of the previous year.

The NRB macroeconomic report also shows that
workers’ remittances has increased 5.2 per cent to Rs 566.97 billion in the
review period compared to a growth of 10.2 per cent in the corresponding period
of the previous year. Consequently, net transfer receipts have increased by
10.3 per cent to Rs 692.76 billion in the review period. Such receipts had
increased by 11.8 per cent in the same period of last fiscal year.

Owing to sharp rise in import and slow growth of
remittance, current account slipped into deficit by Rs 7.57 billion in the
review period. For comparison, current account was in surplus at a significant
level of Rs 134.30 billion in the same period of the previous year. However,
the overall balance of payments (BoP) recorded a surplus of Rs 53.84 billion in
the review period.

Similarly, the country recorded capital transfer of
Rs 11.30 billion and foreign direct investment (FDI) inflows of Rs 11.61
billion in the review period this year. In the same period of the previous
year, capital transfer and FDI inflows stood at Rs 11.59 billion and Rs 4.64
billion, respectively.

Meanwhile, NRB report has stated the economy is
gaining traction. “The GDP growth estimate of 6.9 per cent released by Central
Bureau of Statistics recently is reflective of optimistic growth outlook, at
least in near term.”